Tuesday, December 19, 2006

fortunately this time it is only o financial tsunami that hits mainly foreign investors/speculators. this is a very dramatic move from the central bank and has triggered great pain the last time it has been made. but it will remind lots of investors of the risks that almost everybody seem to ignore in almost all kinds of markets these days. the vola will for sure spike and i´m sure lots of hedge funds will suffer big time! ( no sympathy ...)

Dec. 19 (Bloomberg) -- Thai stocks plunged the most in at least 19 years, triggering declines across Asia, after the central bank said international investors must pay a 10 percent penalty unless they keep funds in the country for a year.

The capital controls, announced yesterday by central bank Governor Tarisa Watanagase, are aimed at stemming a 16 percent gain in the baht this year. The Thai currency had its biggest two-day decline since April 2005.

``It's not good news, it means we've got a real problem in terms of redemption of funds,'' said Mark Mobius, who oversees $30 billion in emerging market stocks at Templeton Asset Management Ltd. ``Some people might get a bit scared because if Thailand is doing this, then maybe Malaysia might do it, and maybe the Philippines.''

Thailand's SET Index fell as much as 134.16, or 18 percent, to 596.39, led by PTT Pcl and Bangkok Bank Pcl, as of 3:09 p.m. in the Thai capital. Government bonds slumped, pushing the yield on the 10-year note up 0.23 percentage point to 5.1 percent. The baht fell as much as 1.5 percent to 36.08 and recently traded at 35.94.

Stocks also fell in India, Malaysia, Indonesia and the Philippines as the currency controls heightened concern about investing in emerging markets. Thailand in 1997 triggered currency collapses in South Korea and Indonesia, leaving much of Asia in a financial crisis that required an international bailout.

Capital ControlsMalaysia's government in 1998 fixed its currency against the dollar and imposed capital controls that barred the repatriation of proceeds from the sale of stocks and bonds for one year.

``Global investors have to recognize risk again,'' said Soichiro Monji, who helps oversee about $47 billion as senior strategist at Daiwa SB Investments Ltd. in Tokyo. ``Investors might shift from developing markets to other safer markets.''

The new rules limit internationalinvestors to using 70 percent of their funds to buy Thai stocks, bonds and property The remaining 30 percent will be held by banks and subject to a 33 percent penalty in the event an investor wants to withdraw the full amount and convert the proceeds into a foreign currency.

The baht rose to a nine-year high before yesterday's announcement on speculation economic growth would accelerate after a Sept. 19 coup ended a political deadlock that had curbed spending and confidence.

Thai Union Frozen Products Pcl, the world's second-largest tuna canner, was among exporters that last month asked the central bank to stem baht gains from undermining their competitiveness. Ten industry groups were part of the protest, including exporters of chicken meat, soybean and shrimp.

Stock Slide``It'll help exporters and the country's trade balance,'' said Visit Tantisunthorn, secretary-general of the Government Pension Fund, the nation's largest money manager, with more than $7.8 billion in assets.Shares of Bangkok Bank, the nation's largest lender, sank 19 percent to 100 baht, the biggest loss since at least 1990. An index of bank stocks plunged 24 percent. The magnitude of the market slump triggered a 30-minute trading halt at the Thai stock exchange.

``It's basically as if they're putting a tax on any trades less than a year,'' said Magnus Prim, a senior foreign-exchange strategist at Skandinaviska Enskilda Banken in Singapore. ``It's going to stop any buying pressure and with the stock market likely to be hit, we could see the baht falling some more.''

Slowing Exports.....``Most exporters are very happy with the central bank's new measure,'' said Dusit Chongsutthamanee, corporate finance manager at Pranda Jewelry Pcl, Thailand's biggest publicly traded jewelry exporter. ``The baht has strengthened at a much faster pace than other currencies in the region. That affects most exporters because it has made their product prices less competitive with other producers.''

`May Adjust'.......A rising baht hurts exporters by cutting the value of their local currency-denominated profits and making their products more expensive compared with those of Asian rivals. China's yuan has added 3.2 percent against the dollar this year, Malaysia's ringgit has gained 5.5 percent and Singapore's dollar has climbed 7.4 percent.

The central bank may adjust the curbs ``if the baht doesn't continue to be strong,'' ...........

Finance Minister Pridiyathorn Devakula said Tuesday the central bank would exclude inflows into the stockmarket from the Bank of Thailand\'s drastic measure of 30 per cent reserve withholding requirement.

After an urgent meeting in the evening among Finance Ministry, Stock Exchange of Thailand, the Securities and Exchange Commission, and Bank of Thailand, the Thai authorities agreed that the earlier measure is too harsh. Pridiyathorn said they agreed to exclude inflows for stock investment from the harsh measure.

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Anonymous said...

BOT allows foreigners to keep more baht in nonresident account

The central bank Tuesday allowed foreigners to keep more baht in the nonresident baht account in order to provide room for them to keep their baht liquidity after the new anti-speculation measure has made them shifting capital from the stock market.

The BOT in late afternoon cancelled the ceiling of outstanding baht liquidity in nonresident baht account per person earlier set at Bt300 million at the end of the day. The ceiling was set because the BOT would like to reduce baht liquidity in foreigners' hand.

However, the central bank announced to cancel the ceiling to allow foreigner to park their baht liquidity after they left the stock market.

Finance Minister Pridiyathorn Devakula said Tuesday the central bank would exclude inflows into the stock market from the Bank of Thailand\'s drastic measure of 30 per cent reserve withholding requirement.

After an urgent meeting in the evening among Finance Ministry, Stock Exchange of Thailand, the Securities and Exchange Commission, and Bank of Thailand, the Thai authorities agreed that the earlier measure is too harsh.

Pridiyathorn said they agreed to exclude inflows for stock investment from the harsh measure.

Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula is satisfied with the recovery in the stock exchange, which regained Bt500 billion of the market capitalisation Wednesday following the loss of Bt820 billion on Tuesday.

"Now that the baht is not further strengthened and the market starts to recover, there should be no further measures," he said.

Pridiyathorn admitted that he never thought that the capital control measure's impact would have been this drastic.

Moody's Investors Service said that is sees no rating implications for Thailand in the wake of the New Year's Eve bombings in Bangkok. The agency's rating outlook for Thailand remains stable. "Concerns would be heightened if the attacks prove to be an escalation of the separatist insurgency -- though neither the identity nor the motive for the latest attacks are known at this point -- or if the attacks signal the onset of a violent backlash from the September military coup," said Moody's Vice President Thomas Byrne. Moody's has said that a sustained escalation of separatist violence outside the southern border provinces would be a negative credit factor for the country. Byrne said that Thailand's external payments and fiscal positions have improved significantly since the 1997 financial crisis, insulating the sovereign from shocks and supporting the Thai government's Baa1 bond ratings. The budget has been balanced or in surplus since 2003, international reserves have risen above $64 billion, and foreign direct investment has swollen to record levels in the last two years with net inflows of more than $8 billion through the first 10 months of 2006. "An escalation of violence that deters new investment in Thailand would have negative implications for Thailand's credit fundamentals," said Byrne. "More broadly, a shift by the post-coup leadership in economic or political policies that makes the investment climate less hospitable than under the Thaksin administration would also have negative credit implications. Byrne added that a restoration of confidence in Thailand's democratic and constitutional institutions would help underpin economic and financial stability in Thailand over the long run." Moody's affirmed its investment-grade ratings for Thailand on Sept 20 in the wake of the coup. They include:

Foreign business community waited nervously Monday as the government prepared to unveil new rules for investing in Thailand, which could dramatically change the way companies operate here.

The government is expected to consider Tuesday a revision to the Foreign Business Act, which is expected to redefine requirements for voting rights and shareholding structures of foreign companies that operate here.

Pramon Suthiwong, chairman of Thailand's Board of Trade business group, said he expected the law to limit foreign ownership in Thai companies to about 50 per cent, while redefining voting rights for local subsidiaries.

The Bank of Thailand said Monday there is currently no plan to revise the capital withholding requirement imposed last month on certain capital inflows as it is necessary to maintain the Baht's stability, however some minor recent measures may be revoked.

The baht's shows that the withholding measure is effective and currently necessary. The central bank has not intervened in foreign exchange markets since the measure was introduced on December. 19, 2006, Governor Tarisa Watanagase said.

A senior monk loves Thai Rak ThaiThe Thai Rak Thai Party found a senior monk among its fans when former party MPs attended a religious ceremony to mark the New Year. But, unlike previous years, this year\'s event was held without the presence of former party leader Thaksin Shinawatra, his wife and their children.Phra Khru Atthamedhi, assistant abbot from Wat Sa Ket, gave sermons to more than 100 ex-MPs and party executives taking part in the event.The monk told them that he "also loves the Thai Rak Thai Party," so do many people in the provinces."In the provinces, people want the former prime minister [Thaksin] to return to work. They still love Thai Rak Thai and remain part of your fan club," said the monk.

The economic and political whirlwind currently buffeting the country is having a substantial impact with the Stock Exchange of Thailand expected to take at least eight months to recover, says economist Anusorn Tamajai.

Although stocks are exempt from the 30% reserve requirement on foreign capital inflows that the Bank of Thailand introduced on Dec 18, the impact is still being felt and it will be a while before the problem is resolved, said Dr Anusorn, a director of the SET subsidiary Family Know-How Co.

Exacerbating the investment climate was the string of New Year's Eve bombings in Bangkok and uncertainty over the content and mechanism of amendments to the Foreign Business Act (FBA), expected this month.

Dr Anusorn advises investors to sell their stock and bond holdings, stick mostly with cash, and put off any property purchases until the situation improves.

The best time to pick good stocks would be from the middle of the year until the third quarter, he believes. And while bond prices have dropped and their yields have risen, it's still best to wait for prices to slide further before buying bonds of one to two years' duration.

Dr Anusorn expects the 30% reserve rule to lead to tightness in the bond market because new foreign money will not flow in. while some that was previously there will flow out.

"If the national economic outlook changes _ that is, if the Bank of Thailand's capital control measures and amendments of the Foreign Business Act are not handled properly _ then it could trigger a huge capital outflow, in which case interest rates will rise in Thailand. If that happens then the bond market investment strategy should be to go for short-term and not long-term issues."

Rising rates, of course, push up the costs not only of businesses but also of the government, which is the biggest borrower in the long-term bond segment.

The property market is also in a wait-and-see mode until the Foreign Business Act is clarified. One reason is that foreigners have frequently got around the law by using Thai companies to buy real estate. However, they use local nominees to hold shares on their behalf in these companies, which effectively puts them under foreign control.

"That is done by getting around the law and it will be affected, and when that happens asset prices will drop in Thailand," says Dr Anusorn. "That's why I'm trying to point out that the key tactic should be to hold cash and wait for prices to drop to a suitable level.

"Even right now the effect has started to show. No new entry (of foreign money into the property market) is taking place; investors are waiting for clarity."

The impact is far-reaching with Phuket and other resort areas also being hit because foreigners who had previously used companies to acquire real estate may find the rules of the game changing and some investment doors closing unless they can restructure their holdings.

While this could lead to property prices falling, Dr Anusorn does not expect a steep plunge because there could be people who will buy if and when some foreigners sell. "So the price won't drop a lot but if there aren't any buyers then it will plunge. Therefore the investment strategy should be to wait until the third quarter because by then you will get it cheap."

The price of gold, meanwhile, should remain stable. "It might rise a little bit because there is demand for gold, Chinese and Indian economies are strong and they consume a lot of gold _ even Vietnam buys quite a lot. Looking at the national reserves of each country _ central banks might reduce their dollar portfolio and increase the proportion of gold and other currencies."

And while the stock market has escaped capital control measures, they remain in place for the mutual fund business, which is facing problems, especially property funds. Dr Anusorn pointed out that property funds will be seen as less attractive because out of total investments of around 40 billion baht, 30 billion is foreign cash.

"It's a lot, when foreigners invest in the property sector they do so through property funds because they are more liquid, they don't actually have to hold the property.'

He believes the central bank's 30% reserve requirement on foreign capital inflows was far more than was needed to arrest the rise of the baht, saying that cutting interest rates would have been better.

"When the baht strengthened continuously they should have chosen to cut interest rates because speculators park their money in the short-term bond market, and cutting interest rates would have decreased their motivation to speculate."

However, he acknowledged that the central bank might have ruled out an interest-rate cut because it would have taken a big reduction to take the pressure off the baht.

As well, he said, the central bank had good intentions in introducing capital controls given that exports are the growth engine of the Thai economy and they are hurt the most by a strong baht.

"But this has occurred and triggered a problem and in resolving this problem I think we should use it for a while and then drop the measure. It would be better to use market or interest-rate measures."

But if the central bank uses market intervention to control the baht's rise _ buying dollars and selling baht _ it will chalk up losses because the dollar is weakening. The more dollars the central bank buys, the more it loses. "From the information we have the central bank has already lost 75 billion baht," he said.

"Right now all central banks are trying to liquidate dollars, not buy them, so intervention can only be done up to a certain point."

Enough is enough : Thaksin Ousted Prime Minister Thaksin Shinawatra has vowed not to re-enter politics, saying "enough is enough." Speaking publicly for the first time since his ousting, Thaksin told CNN that he would like to return to Thailand as a private citizen. "After six years in politics, it is time for me to be normal citizens, outside political arena. Enough is enough," Thaksin said during brief interview with CNN from Singapore. He dismissed suggestion that he was behind the New Year's Eve bombings in Bangkok and surrounding areas that resulted in the death of three people. Thaksin called on the authorities to bring the culprit to justice and expressed sympathy with those who suffered from the bombings. "I came from election. I came from the people," said Thaksin, described the bombings as "stupid".

SCBQ product is a first for stock market and aims to reduce impact of volatility Prompted by volatility in the capital market and continuing political uncertainty, SCB Quant Asset Management (SCBQ) has launched an insurance product that investors can use to cover the risk of investing in any stock in the Thai bourse.Investors can nominate the securities, level of insurance coverage, period of maturity and day of inception. From these four variables, the premium charge is calculated. The rate can vary throughout any day, depending on market environment, but once set, the premium is fixed.SCBQ gave an example: an investor might want to insure his or her purchase of 50,000 PTT shares for a period of 60 days. The share price is Bt200 apiece on the day the agreement takes effect. SCBQ calculates a premium of 2 per cent of the total stock value, or Bt200,000. The premium is non-refundable whether the stock rises or falls.

On the 60th day, when the agreement matures, if the price has fallen to Bt150 a share, the investor receives Bt2.5 million in compensation, and the value of the investment remains Bt10 million - minus the Bt200,000 cost of the coverage.

If the price of the shares rises above Bt200 apiece, the investor receives nothing from the insurance coverage.

SCBQ managing director Paritat Lerngutai said the product was a first for the Thai stock market and available only to SCBQ's private-fund customers. Those wishing to buy the insurance coverage must first subscribe to SCBQ's private fund. Initial investment for the product must be more than Bt2 million, or there must be more than 20,000 shares involved in the coverage. Paritat said SCBQ held off on the launch of another product earlier this month.

"It's a no-capital guarantee product that the firm has designed for a bull market. All of our superbullish products are now kept in a drawer, waiting for more favourable market circumstances. Following the situation now, we decided to launch products with guarantee-type features," he said.

Exemption for fully hedged borrowingsFully hedged foreign currency borrowings by Thai companies will be exempted from the 30% reserve rule starting in February, according to Bank of Thailand governor Tarisa Watanagase. Loans must have maturities of at least one year, and be fully hedged against currency risk, she said yesterday. A formal announcement is to be made on Monday. ''Our objective remains the same. We don't want the baht to fluctuate from capital inflows,'' Dr Tarisa said. The exemption of fully hedged loans reflects the fact that such transactions will require a future swap to be taken immediately against the trade, mitigating any impact on currency rates. Local companies, including the energy giant PTT Plc, have sought an exemption to allow fund-raising from the international market. Without an easing of the rules, their financing costs would rise. On Dec 18, the central bank announced that foreign inflows would require a 30% deposit to be set aside interest-free with regulators under a measure aimed at stemming the appreciation of the baht. Dr Tarisa also said exporters should not be worried about rapid appreciations in the baht's offshore rate, which reached 33.5 to the dollar yesterday. Domestic banks are still quoting a rate of around 35.7-35.9. Offshore rates are significantly different from local rates as the 30% reserve rule has curbed liquidity in the international market. Dr Tarisa said the gap between offshore and onshore rates reflected the effectiveness of the reserve rule. Local appreciation of the baht this past week stemmed in part from dollar sales by exporters alarmed about offshore rates, she said. ''The central bank would like to warn exporters to be careful in monitoring the exchange rate. There is a two-tier baht market now,'' Dr Tarisa said. Suchada Kirakul, a central bank assistant governor, said the offshore baht rate had also strengthened because of investor confusion about the capital account rules and the use of special non-resident securities accounts (SNS) and non-resident baht accounts (NRBA). ''Investors are perhaps confused about whether they can transfer funds from an SNS to an NRBA. Or they may not understand that they can buy baht without being subject to the rule, so they have sold dollars in the offshore market,'' she said.

With the warning lights flashing over the world economic outlook, the global stock exchanges sell off entered another week Monday triggering further steep falls in European shares and dramatically reshaping expectations about key financial markets in the coming months.

Picking up the gloomy trend in Asian stock markets, leading European markets marked the start of the new trading week by sinking by about two per cent with bourses in Eastern Europe and high-tech stocks in particular taking a hammering as investors dumped stocks perceived to be risky.

"I sense this is an overdue assessment of risk," said Kenneth Wattret, BNP Paribas' chief eurozone economist. "The momentum looks strongly downward," he said with the Eurostoxx 50, a leading stocks indicators for the 13-member slumping by almost two per cent in early afternoon trading Monday.

After already wiping out gains chalked up since the end of last year, bourses in London, Frankfurt, Paris, Milan and Zurich were down in trading Monday as worries grew that the upheaval in stocks could hit another markets, notably currencies, which have so far managed to remain on the sidelines of the sell off in stocks.

But highlighting the alarm about emerging markets which has set in among investors, bourses from Warsaw to Moscow and through to Istanbul and Cairo took an even bigger pounding Monday.

While Warsaw, which is seen as leading bourse in Central Europe, dropped by a hefty 3.83 per cent in early afternoon trading, Moscow fell by more than five per cent and the Vienna exchange, which is home to many companies with big investments in Central Europe, lost about two per cent. Likewise, Istanbul was off more than three per cent.

In the meantime, Frankfurt's TecDax, a leading European high-tech index cascaded down by more than four per cent with some stocks listed on the exchange falling by more than eight per cent as the negative market mood continued to gain ground.

Triggered by a plunge in the Shanghai bourse, the five-straight days of plummeting share markets have also helped to underscore growing concerns about the prospects for the key US housing market and prompted a change in market sentiment towards the world interest rate outlook.

Indeed, the shakeout in global bourses comes in the run-up to a meeting Thursday of the European Central Bank, when the ECB is expected to deliver its seventh interest rate hike since December 2005.

But while analysts believe that a 25-basis points increase in eurozone borrowing costs on Thursday is a done deal, going forward the equity market shakeout now means that many analysts are now far less certain about ECB's next rate move.

This means that a major focus of the markets this week is likely to be the regular monthly press conference on Thursday by ECB chief Jean-Claude Trichet with analysts picking over his comments for pointers as to how the eurozone central bank is sizing up the economic fall from the stock market rout.

Similarly, many analysts believe that with world stock markets tanking and worries deepening about the performance of the giant American economy in the coming months that the US Federal Reserve could move to loosen monetary policy.

Economists have warned for some time that the global economy's expansion rate was likely to slip back a gear in the coming months as US economic growth cooled.

As a result, with uncertainty growing about the performance of the US economy this year, a key test of both the prospects for equities and the American economic outlook is likely to come Friday with the release of the latest US payrolls data.

While a strong payrolls figure might be expected to give the nerve-wracked stock markets a breather, a weaker-than-forecast number could send the alarm bells ringing among investors and economists that the fragile housing market has had a knock-on effect on the American labour market.

This in turn could set off a chain reaction in markets, sending shares nose diving again, rattling the dollar and sending ripples across global currency trading.

Consequently, the last five days of falling share prices could even end up being the calm before the storm.

What is more, some analysts say that considering the skittish state of investors even a strong payrolls figure on Friday could have a negative impact on market sentiment, resulting in a new round of stock exchange volatility as investors and analysts start fretting about the US inflation outlook.

Concerns about a pickup in US inflation would prompt worries of the US Federal Reverse raising interest rates again and as a consequence undercutting the attractiveness of share markets.

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